Question 1

If management judges one project in a mutually inclusive set to be acceptable for investment,

Accepted Answer

A) all the other projects in the set are rejected. 
B) only one other project in the set can be accepted. 
C) all other projects in the set are also accepted. 
D) only one project in the set will be rejecteD. 
A) all the other projects in the set are rejected. 
B) only one other project in the set can be accepted. 
C) all other projects in the set are also accepted. 
D) only one project in the set will be rejecteD.

Question 2

An investment project is expected to yield $12,000 in annual revenues,has $3,000 in fixed costs per year,and requires an initial investment of $6,000.Given a cost of goods sold of 50 percent of sales,what is the payback period in years?

Accepted Answer

A) 1.00 
B) 1.50 
C) 2.00 
D) 4.00 
A) 1.00 
B) 1.50 
C) 2.00 
D) 4.00

Question 3

Stone Corporation is interested in purchasing a state-of-the-art widget machine for its manufacturing plant.The new machine has been designed to basically eliminate all errors and defects in the widget-making production process.The new machine will cost $150,000,and have a salvage value of $70,000 at the end of its seven-year useful life.Stone has determined that cash inflows for years 1 through 7 will be as follows: $32,000;$57,000;$15,000;$28,000;$16,000;$10,000,and $15,000,respectively.Maintenance will be required in years 3 and 6 at $10,000 and $7,000 respectively.Stone uses a discount rate of 11 percent and wants projects to have a payback period of no longer than five years.
Present value tables or a financial calculator are required.
 a. $\text { Compute the net pressent value of the new machine }$
b. $\text { Compute the firm's profitability index }$ 
 c.  $\text { Compute the payback period }$ 
 d. $\text { Evaluate this investment proposal for Stone Company. }$

Accepted Answer

, and a payback period of over ss years.

Question 4

In a typical (conservative assumptions)after-tax discounted cash flow analysis,depreciation expense is assumed to accrue at

Accepted Answer

A) the beginning of the period. 
B) the middle of the period. 
C) the end of the period. 
D) irregular intervals over the life of the investment. 
A) the beginning of the period. 
B) the middle of the period. 
C) the end of the period. 
D) irregular intervals over the life of the investment.

Question 5

Miller Corporation faces a marginal tax rate of 30 percent.One project that is currently under evaluation has a cash flow in the fifth year of its life that has a present value of $12,000 (after-tax).Miller Corporation assumes that all cash flows occur at the end of the year and the company uses 13 percent as its discount rate.What is the pre-tax amount of the cash flow in year 5? (Round to the nearest dollar. )Present value tables or a financial calculator are required.

Accepted Answer

A) $15,475 
B) $22,108 
C) $31,582 
D) $73,692 
A) $15,475 
B) $22,108 
C) $31,582 
D) $73,692

Question 6

If the discount rate that is used to evaluate a project is equal to the project's internal rate of return,the project's ____ is zero.

Accepted Answer

A) profitability index 
B) internal rate of return 
C) present value of the investment 
D) net present value 
A) profitability index 
B) internal rate of return 
C) present value of the investment 
D) net present value

Question 7

If r is the discount rate,the formula [1/(1 + r)] refers to the

Accepted Answer

A) future value interest factor associated with r for one period. 
B) present value of some future cash flow. 
C) present value interest factor associated with r for one period. 
D) future value interest factor for an annuity with a duration of r periods. 
A) future value interest factor associated with r for one period. 
B) present value of some future cash flow. 
C) present value interest factor associated with r for one period. 
D) future value interest factor for an annuity with a duration of r periods.

Question 8

Project funding is an investing decision.

Accepted Answer

A) True 
 B)False

Question 9

Jennings Creations
Jennings Creations is considering an investment in a computer that is capable of producing various images that are useful in the production of commercial art.The computer would cost $20,000 and have an expected life of eight years.The computer is expected to generate additional annual net cash receipts (before-tax)of $6,000 per year.The computer will be depreciated according to the straight-line method and the firm's marginal tax rate is 25 percent.
Refer to Jennings Creations.What is the after-tax net present value of the proposed project (using a 16 percent discount rate)? Present value tables or a financial calculator are required.

Accepted Answer

A) $2,261 
B) $(454) 
C) $6,062 
D) $(4,797) 
A) $2,261 
B) $(454) 
C) $6,062 
D) $(4,797)

Question 10

Project funding is a financing decision.

Accepted Answer

A) True 
 B)False

Question 11

The net present value method assumes that all cash inflows can be immediately reinvested at the

Accepted Answer

A) cost of capital. 
B) discount rate. 
C) internal rate of return. 
D) rate on the corporation's short-term debt. 
A) cost of capital. 
B) discount rate. 
C) internal rate of return. 
D) rate on the corporation's short-term debt.

Question 12

Which of the following capital budgeting techniques typically ignores the time value of money?

Accepted Answer

A) payback period 
B) net present value 
C) internal rate of return 
D) profitability index 
A) payback period 
B) net present value 
C) internal rate of return 
D) profitability index

Question 13

The Mahan Corporation is considering an investment in a project that generates a profitability index of 1.3.The present value of the cash inflows on the project is $44,000.What is the net present value of this project?

Accepted Answer

A) $10,154 
B) $13,200 
C) $57,200 
D) $33,846 
A) $10,154 
B) $13,200 
C) $57,200 
D) $33,846

Question 14

Sunderland Wood Creations
Sunderland Wood Creations is considering a proposal to sell an existing lathe and purchase a new computer-operated lathe.Information on the existing lathe and the computer-operated lathe follow:
                                                                   $\begin{array}{ll}
\text { Existing } & \text { Computer-operated } \
\underline{\text { lathe }} &\underline{\text { lathe }}
\end{array}$
$\begin{array}{lcc}
\text { Cost } & \$ 100,000 & \$ 300,000 \
\text { Accumulated depreciation } & 60,000 & 0 \
\text { Salvage value now } & 20,000 & \
\text { Salvage value in 4 years } & 0 & 60,000 \
\text { Annual depreciation } & 10,000 & 75,000 \
\text { Anmual cash operating costs } & 200,000 &50,000\
\text { Remaining usefull life } & 4 \text { years }& 4 \text { years }
\end{array}$

Refer to Sunderland Wood Creations.What is the payback period for the computer-operated lathe?

Accepted Answer

A) 1.87 years 
B) 2.00 years 
C) 3.53 years 
D) 3.29 years 
A) 1.87 years 
B) 2.00 years 
C) 3.53 years 
D) 3.29 years

Question 15

In a discounted cash flow analysis,which of the following would not be consistent with adjusting a project's cash flows to account for higher-than-normal risk?

Accepted Answer

A) increasing the expected amount for cash outflows 
B) increasing the discounting period for expected cash inflows 
C) increasing the discount rate for cash outflows 
D) decreasing the amount for expected cash inflows 
A) increasing the expected amount for cash outflows 
B) increasing the discounting period for expected cash inflows 
C) increasing the discount rate for cash outflows 
D) decreasing the amount for expected cash inflows

Question 16

Freeman Corporation bought a piece of machinery.Selected data is presented below:
$\begin{array}{l}
\begin{array}{l}
\text { Usefull life } &6 years\
\text { Yearly net cash inflow }&\$45,000 \
\text { Salvage value }&-0- \
\text { Internal rate of return }&18\% \
\text { Cost of capital }&15\%
\end{array}\
\end{array}$
Present value tables or a financial calculator are required.
The initial cost of the machinery was

Accepted Answer

A) $157,392. 
B) $174,992. 
C) $165,812. 
D) $170,303. 
A) $157,392. 
B) $174,992. 
C) $165,812. 
D) $170,303.

Question 17

The basis for measuring the cost of capital derived from bonds and preferred stock,respectively,is the

Accepted Answer

A) pre-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. 
B) pre-tax rate of interest for bonds and stated annual dividend rate for preferred stock. 
C) after-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. 
D) after-tax rate of interest for bonds and stated annual dividend rate for preferred stock. 
A) pre-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. 
B) pre-tax rate of interest for bonds and stated annual dividend rate for preferred stock. 
C) after-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. 
D) after-tax rate of interest for bonds and stated annual dividend rate for preferred stock.

Question 18

Which of the following capital budgeting techniques does not routinely rely on the assumption that all cash flows occur at the end of the period?

Accepted Answer

A) internal rate of return 
B) net present value 
C) profitability index 
D) payback period 
A) internal rate of return 
B) net present value 
C) profitability index 
D) payback period

Question 19

An organization's discount rate should be less than the organization's cost of capital.

Accepted Answer

A) True 
 B)False

Question 20

What are the limitations of the payback period as a capital budgeting technique?

Accepted Answer

The payback period ignores the time valu

If management judges one project in a mutually inclusive set to be acceptable for investment,

An investment project is expected to yield $12,000 in annual revenues,has $3,000 in fixed costs per year,and requires an initial investment of $6,000.Given a cost of goods sold of 50 percent of sales,what is the payback period in years?

In a typical (conservative assumptions)after-tax discounted cash flow analysis,depreciation expense is assumed to accrue at

If the discount rate that is used to evaluate a project is equal to the project's internal rate of return,the project's ____ is zero.

If r is the discount rate,the formula [1/(1 + r)] refers to the

Project funding is an investing decision.

Project funding is a financing decision.

The net present value method assumes that all cash inflows can be immediately reinvested at the

Which of the following capital budgeting techniques typically ignores the time value of money?

The Mahan Corporation is considering an investment in a project that generates a profitability index of 1.3.The present value of the cash inflows on the project is $44,000.What is the net present value of this project?

In a discounted cash flow analysis,which of the following would not be consistent with adjusting a project's cash flows to account for higher-than-normal risk?

Freeman Corporation bought a piece of machinery.Selected data is presented below: Usefull life 6years Yearly net cash inflow \4 5,000 Salvage value -0- Internal rate of return 18\% Cost of capital 15\% Present value tables or a financial calculator are required. The initial cost of the machinery was

The basis for measuring the cost of capital derived from bonds and preferred stock,respectively,is the

Which of the following capital budgeting techniques does not routinely rely on the assumption that all cash flows occur at the end of the period?

An organization's discount rate should be less than the organization's cost of capital.

What are the limitations of the payback period as a capital budgeting technique?

Introduction to Cost Accounting

Cost Terminology and Cost Behaviors

Predetermined Overhead Rates, Flexible Budgets, and Absorptionvariable Costing

Activity-Based Management and Activity-Based Costing

Job Order Costing

Process Costing

Standard Costing and Variance Analysis

The Master Budget

Break-Even Point and Cost-Volume-Profit Analysis

Relevant Information for Decision Making

Allocation of Joint Costs and Accounting for By-Products

Introduction to Cost Management Systems

Responsibility Accounting,support Department Allocations,and Transfer Pricing

Performance Measurement, balanced Scorecards, and Performance Rewards

Managing Costs and Uncertainty

Implementing Quality Concepts

Inventory and Production Management

Emerging Management Practices

Filters

Exam 15: Capital Budgeting

If management judges one project in a mutually inclusive set to be acceptable for investment,

An investment project is expected to yield $12,000 in annual revenues,has $3,000 in fixed costs per year,and requires an initial investment of $6,000.Given a cost of goods sold of 50 percent of sales,what is the payback period in years?

In a typical (conservative assumptions)after-tax discounted cash flow analysis,depreciation expense is assumed to accrue at

If the discount rate that is used to evaluate a project is equal to the project's internal rate of return,the project's ____ is zero.

If r is the discount rate,the formula [1/(1 + r)] refers to the

Project funding is an investing decision.

Project funding is a financing decision.

The net present value method assumes that all cash inflows can be immediately reinvested at the

Which of the following capital budgeting techniques typically ignores the time value of money?

The Mahan Corporation is considering an investment in a project that generates a profitability index of 1.3.The present value of the cash inflows on the project is $44,000.What is the net present value of this project?

In a discounted cash flow analysis,which of the following would not be consistent with adjusting a project's cash flows to account for higher-than-normal risk?

The basis for measuring the cost of capital derived from bonds and preferred stock,respectively,is the

Which of the following capital budgeting techniques does not routinely rely on the assumption that all cash flows occur at the end of the period?

An organization's discount rate should be less than the organization's cost of capital.

What are the limitations of the payback period as a capital budgeting technique?

Introduction to Cost Accounting

Cost Terminology and Cost Behaviors

Predetermined Overhead Rates, Flexible Budgets, and Absorptionvariable Costing

Activity-Based Management and Activity-Based Costing

Job Order Costing

Process Costing

Standard Costing and Variance Analysis

The Master Budget

Break-Even Point and Cost-Volume-Profit Analysis

Relevant Information for Decision Making

Allocation of Joint Costs and Accounting for By-Products

Introduction to Cost Management Systems

Responsibility Accounting,support Department Allocations,and Transfer Pricing

Performance Measurement, balanced Scorecards, and Performance Rewards

Managing Costs and Uncertainty

Implementing Quality Concepts

Inventory and Production Management

Emerging Management Practices

Filters